Why You Should Care About Poly Medicure's (NSE:POLYMED) Strong Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Ergo, when we looked at the ROCE trends at Poly Medicure (NSE:POLYMED), we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Poly Medicure:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.21 = ₹2.8b ÷ (₹17b - ₹3.2b) (Based on the trailing twelve months to December 2023).

So, Poly Medicure has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 16%.

View our latest analysis for Poly Medicure

In the above chart we have measured Poly Medicure's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Poly Medicure .

How Are Returns Trending?

Poly Medicure deserves to be commended in regards to it's returns. The company has consistently earned 21% for the last five years, and the capital employed within the business has risen 192% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Poly Medicure can keep this up, we'd be very optimistic about its future.

The Key Takeaway

Poly Medicure has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And long term investors would be thrilled with the 745% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

While Poly Medicure looks impressive, no company is worth an infinite price. The intrinsic value infographic for POLYMED helps visualize whether it is currently trading for a fair price.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.